subject: 5 Economic Indicators that Influence Forex Trading [print this page] 5 Economic Indicators that Influence Forex Trading
When you are aware what economic factors affect forex, you can predict currency movement and restrict your losses. These economic factors are publicly available and are a measure of the economic stability of any state. A good trader uses these economic indicators to make sound trading investments. The economic reports usually depict any improvement or decline in the economy suggested by these indicators.
Economic Stability
The most important indicator affecting forex trading is the economic stability of the state. Economic factors such as unemployment rate and the state of government have significant influence on currency fluctuations. When the economic conditions are good, currency prices reflect this condition. On the other hand, in the case of economic turmoil, high inflation and unemployment, the currency rates decline.
GDP
Another important factor to consider while trading currency is the GDP of a state. GDP reflects the total value of all the goods and services sold and produced within a state. It is measured for a period, usually a year instead of a week or a month. Also, since GDP is a lagging indicator, it reflects the change when the economy is already following a trend. Due to this reason, GDP is used in conjunction with other indicators.
Retail Sales Report
A third economic indicator affecting forex trading is retail sales reports. This report represents the total earnings of all retail stores in the state. This measure is usually calculated by taking a sample of the retail stores in the state. It also reflects the consumer spending patterns in a state and is considered a very important indicator of a country's economic condition.
Industrial Production Report
Industrial production report is another vital economic indicator affecting forex trading. Such a report measures industrial production of a country in comparison to the potential production capacity over a specific time. When the production is at optimal capacity utilization, the forex is influenced positively.
CPI
Another crucial economic indicator influencing forex trading is CPI, or the consumer price index. It measures the price changes of consumer goods in 200 different categories over a period of time and is commonly known as the inflation rate. Moreover, the amount of exports and imports made by a country also reflect the strength or weakness of the economy. Higher exports show strength of the economy and affect the forex positively.
Although helpful, these indicators are not the only factors that affect currency prices. Moreover, most of the factors follow specific trends and it is necessary to understand how they affect the currency prices so as to make sound predictions.
